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Whoa whoa whoa... wait for a minute. WHAT??? Is it not possible to acquire property ownership in Bali? So what are you selling?
The question is legitimate, even inescapable... let us examine the Great Indonesian Property Code, which is really different from what we are used to. The unknown legal structures and terms may be daunting at first, but don't worry: this article is written to be easily understood by the mortals and we guarantee that by the end you will have a clearer understanding of Indonesian property law.
Table of Contents
In everyday life, the term ownership is used with a fair amount of confidence, but what exactly does it mean? This topic is pretty deep and there are libraries already filled with different answers to this question, so we will give you a very simplified one: in the 21st century it means licences and capabilities recognised and granted by the state over a given territory (i.e. what you can do with it). So, ownership is in fact a set of rights and obligations (a title) which the acquirer of the title (the buyer) may exercise. The owner usually has the most extensive powers over the property, but even they cannot do everything, some activities are forbidden, others require a special permit.
The reason why it is important to clarify the above mentioned is because we will talk about all kinds of "titles" below, and we now know that a title means a set of rights that a person or a company can obtain.
Basically, there are 4 legal schemes to be discussed:
1. Property ownership: only for Indonesians (Hak Milik)
First, the news is true, even if it is sad: A foreign national in Bali cannot acquire ownership of property. Only an Indonesian citizen (and the state) is entitled to do this.
This is not an evil measure, nor is it unique: most Asian countries restrict property ownership by foreigners, and similar provisions have protected farmland from the wealthy hands of foreigners in an EU country, Hungary, for example. The aim here was to keep Hungarian farmland in Hungarian hands, and the Indonesian government is trying to do the same to protect the motherland and the its buildings. As a counter-example, we can mention Cambodia, where there are no such restrictions and the Chinese are simply buying up the country...
This form of ownership is called Freehold (Hak Milik) called, the property/land is inheritable and there is no time limit on its use.
Are there any loopholes? Oh yes, two of them: the first one is the (sham) marriage which provides the superpower of ownership as a wedding present; the other one is an Indonesian stooge who officially becomes the owner of the property but it is actually used by the foreign buyer. We would warn against both methods: is it worth giving up secure, legal ownership to save thousands or even a few tens of thousands? Because if the crash hits, you will lose your property.
Szerencsére az indonéz jogalkotók azért gondoltak azokra a külföldiekre is, akik hosszabb távon itt szeretnének élni/válalkozni/dolgozni és persze befektetni az ehhez szükséges tőkét. Nekik fejlesztették ki a következőt:
2. Leasehold: up to 80 years (Hak Sewa)
Leasehold is a property tenure that allows the use of someone else's property (land or villa) for a fixed period of time. In this arrangement, the buyer essentially pays for the entire rental period at the time the contract is signed. Foreigners can legally own a property using this title for up to 30 years, which can be extended for a further 20+30 years; in practice, the duration of the lease is determined by agreement between the buyer and the seller. The agreement also determines whether the buyer can alter, renovate or let out the building for vacation rental.
This form of ownership is called Leasehold (Hak Sewa) and it is extremely popular, as it allows foreigners to own a property under their own name without having to set up their own company or use a stooge. The agreement is notarised by a notary in the form of a Lease Contract, which is legally binding. 90% of properties owned by foreigners in Bali fall into this category.
3. Right to Use: for foreigners already living here (Hak Pakai)
Bali's tourism and gastronomy owe a lot to the foreign professionals, managers, artists etc. living and working here. The main difference between the Leasehold and Right to Use Title is that the Right to Use properties are not allowed to be used for touristic purposes and the applicant, who can be an individual or a foreign company, must have a KITA or KIPA, i.e. a resident visa.
4. Right to Build: the "almost ownership" schema (Hak Guna Bangunan)
The development and management of industrial, commercial and vacation rental buildings is best achieved by using this title.
In a first step, the land or property in Freehold (Hak Milik) status is converted to HGB status and transferred to a PT PMA company, which can be up to 100% foreign-owned. This type of company has the right to develop these properties, build on them and sell them in leasehold scheme.
This form is the closest to the ownership we are used to. A company with HGB rights can manage the property for up to 80 years while retaining the broadest rights over it. However, there are disadvantages compare to leasehold scheme: it requires the establishment of a company, which must be run until the property is sold. This process can be automated, but it will definitely require more energy than a leasehold. Moreover, the capital required to set up a company is not small: It is 10 billion IDR (about US$ 650000).
(5. Apartment ownership: this is a new legal scheme, we will expand our article soon.)
Conclusion: Is it worth acquiring a property in Bali or not?
After all this legal diving, let's review the issue... So, although you cannot acquire traditional ownership, you can use the Leasehold (Long-Term Rent) or the Right to Build (HGB) title to become a quasi-owner and enjoy the property if you want to spend your holiday there, or get high yield if you use it as an investment. Or both!
Here are some arguments for / against:
- Foreigners cannot acquire property rights in Bali
Valóban nem. Én sem örülök neki, de szerencsére a leasehold birtoklási formával is remekül lehet keresni az ingatlanbefektetéseken. És ez a lényeg, a forma csak másodlagos 🙂 - I don't like having to buy my property again after 30 years
Understandable, but it is not traditional ownership... I suggest you change this concept in your mind and consider the property as a lease of a building, a productive asset, which will pay itself back many times by the end of the lease contract. And if the rental business has worked out, it is easy to extend your contract to the next 20 years...
- I want to buy a property that my children can inherit
A large detached house that provides a secure home for the family for generations... I agree, in such a case the institution of traditional ownership is the most appropriate. But a villa in Bali is different. Absolutely. It is an investment, a project that will last 30 years and will bring back the multiple of its original price! In the meantime, of course, you can enjoy ownership-kind rights, e.g. spend your holiday in your villa with your family, invite friends to visit you etc. But you have to remember that this is an investment, not a traditional property.
- I want to move to Bali, but I am worried about losing the property 30 years after I bought it
If you were not buying the property as a productive asset, but living in it on a permanent basis, the concept would be completely different.
I recommend you buying 2 properties, if you can afford it: one to live in with your family, and the other to recoup the cost of both properties, so you won't have any problem renewing the leasehold contract when it expires.
If you don't have so much capital, you have to treat housing as an expense – it means you should finance it form other sources, e.g. if you have a thriving businness.
Do you still want to live in Bali, but your budget is limited? The good news is that apartments and villas are much cheaper to buy outside the tourist area. We are happy to help in this case too!
- I want to plan for longer than 30 years
Planning for the long term is a great concept, but unfortunately the future is becoming less and less predictable: in the past you could think ahead in decades, but nowadays planning ahead even for a few years seems optimistic – just think of the COVID restrictions or the war in Ukraine.
But there were a number of events in the last century as well that caused people to lose their property, even though they had full ownership: the Second World War, nationalisation (e.g. in the ex-socialist countries in Eastern-Europe), the House Bubble Crisis in 2008 etc.
The question is: do you want to own that property forever, or is a lifetime (30, 50 or 80 years) enough? Will the word "mine" still have a meaning in 30 years? (Klaus Schwab says that private property will be abolished by 2030 – but we will be happy... ?)
To summarise: ownership is, at some point, nothing more than a promise to use the property for the rest of time. I wish for all of us that this promise be kept in the 21st century... but let me instead offer something that is not a promise, but a reality: